How to Build ICT Stock Buy Watchlists Using SMT

TL;DR

Filter the Dow 30 down to two-to-four buy candidates by focusing on seasonally bullish windows (February-May and October-January) and picking stocks that make a higher low when the Dow, S&P, and NASDAQ are making lower lows. That divergence, called index SMT, signals institutional accumulation. In 2017 this filtering left Apple, Boeing, Disney, Home Depot, McDonald's, and Visa.

Transcript

foreign welcome back lesson two of the ICT mentorship June 2017 content this is ICT stock trading building by watch lists okay so what we have in front of us is the list of the Dow Jones Industrial composite stock list this is all 30 stocks that presently make up the Dow Jones Industrial Average and this discussion is going to be highlighted just a... Read More

Key Insights

• Building a buy watchlist starts with two filters: confirming the overall stock market is technically poised to rally, and then selecting stocks that have made a higher low during seasonally bullish months.
• The February-to-May and October-to-January windows are described as the ideal periods for long swing setups, so buy watchlists should focus on bullishness in the first and second halves of the calendar year.
• Index SMT works by comparing the three major averages: when the NASDAQ, S&P, and Dow are making lower lows and one average fails to post a lower low, it signals a trend change to bullishness.
• A strong stock shows relative strength by refusing to make a lower low when the Dow Jones makes a lower low, which only happens when large institutions sponsor buy programs and accumulate shares.
• Safe or unexciting stocks like Verizon, GE, and Coca-Cola should be avoided; in the presenter's opinion Microsoft and Intel also belong on that excluded list because they are no longer exciting.
• Fair value gaps act as discount arrays: several filtered stocks gapped up in January, traded back down to close that gap in February, then rallied away, offering a discounted entry.
• A low resistance liquidity run anticipates price breaking through an old high or low; stocks too extended from weekly or daily market structure are eliminated because entries there produce lethargic price action.
• Quarterly increases in sales and profits keep a stock on the list, blending seasonal, fundamental, and technical factors into one process for selecting possible winning stocks.

Questions & Answers

Q: What is the ICT method for building a stock buy watchlist?

Building a buy watchlist begins with two filters. Filter one is confirming the stock market is technically poised to rally higher, meaning it is sound to anticipate a move up. Filter two is selecting higher-low stocks during bullish months, meaning stocks that have made a higher low. The process focuses on seasonally bullish periods and narrows the Dow 30 down to two to four companies using index SMT to spot institutional accumulation.

Q: Which months are ideal for long swing setups in stocks?

The February-to-May months are described as ideal long swing setups, and the October-to-January months are ideal long swing setups as well. The presenter focuses bullishness in the first half of the year and the second half of the year. The lesson concentrates primarily on the February-to-May portion, looking for areas where the market wants to trade higher rather than chasing individual monthly trades. Buying often begins early, in January, ahead of the anticipated February bullishness.

Q: How does index SMT signal a bullish trend change?

Index SMT compares the three major averages: the NASDAQ, the S&P, and the Dow. During seasonally bullish months, when these three averages are making lower lows, one of them will fail to make a lower low. That failure signals the overall market trend is changing to bullishness. At that same juncture, traders look for individual stocks that make higher lows, refusing to drop with the indices. If a stock does not diverge that way, it is discarded from consideration.

Q: Why should stocks like Verizon, GE, and Coca-Cola be avoided?

These are described as safe stocks that should be avoided when building a buy watchlist. Strong stocks will have an obvious bullish structure and show heavy institutional accumulation, whereas Verizon, General Electric, and Coca-Cola do not. The presenter also adds Microsoft and Intel to that avoid list, saying they are companies that in his opinion are just not exciting anymore. He notes this may change in the future, but at the time of recording he was not excited about them.

Q: Which six Dow stocks passed the filter in this 2017 lesson?

After going through all 30 Dow Jones stocks and removing companies like Verizon, GE, and Coca-Cola, six stocks met the criteria of making a higher low while the Dow made a lower low in January. They are Apple, Boeing, Disney, Home Depot, McDonald's, and Visa. Each of these failed to make a lower low when the Dow Jones went lower in January, showing relative strength, then appreciated in share price between February and May.

Q: How does a fair value gap function as a discount entry?

Several of the filtered stocks gapped up in January, creating a fair value gap. That gap was then closed as price traded back down into it in early February, forming a discount array, before price rallied away higher. For example, Boeing gapped up in January and closed that gap on the second trading day of February, then rallied. Home Depot's large up day in January created a liquidity void that price traded down into during February, closing the range before moving higher.

Q: What is a low resistance liquidity run and why does extension matter?

A low resistance liquidity run anticipates price running through an old high or an old low, a break in market structure that is already qualified. Institutions like to see big breakouts and big moves higher, especially on a weekly chart, when fundamentals and the major market also suggest higher prices. However, a stock too extended from weekly or daily market structure is eliminated, because entering at a market structure high tends to produce lethargic price action that peters out, goes sideways, or reverses.

Q: How was Apple identified as a strong buy candidate?

In January 2017 the Dow Jones made a lower low near the midpoint of the month, but Apple failed to go lower at that same time, showing relative strength around the 118 to 120 per share area. That divergence indicated large institutions sponsoring buy programs and heavy accumulation. From February into May, Apple appreciated nicely. On the weekly chart, Apple had an old high back in 2015, and by February 2017 it was poised to break out as a low resistance liquidity run above 135.

Summary & Key Takeaways

• The lesson focuses on the Dow Jones 30 stock list, noting all needed trades can come from these 30 stocks. Buy watchlists concentrate on bullish months, targeting areas where the market wants to trade higher rather than individual monthly trades, primarily in the first and second halves of the year.

• Two filters govern selection: the market must be technically sound to rally, and during bullish months traders select higher-low stocks. February-May and October-January are ideal long swing windows. Index SMT highlights companies under heavy institutional accumulation, and selection should be narrowed to two to four companies.

• Applying the January-into-February lower-low divergence to the Dow 30 filtered out six stocks: Apple, Boeing, Disney, Home Depot, McDonald's, and Visa. Each failed to make a lower low when the Dow did, then appreciated between February and May. Fair value gaps and low resistance liquidity runs guide entries.